Becoming an attractive destination with its growing economy and rapidly increasing population, Africa is whetting the appetite of multinational companies.

Africa is undergoing a big economic transformation; positive changes are bringing about development. The growth potential of the region whets the appetite of multinational companies. In the Sub-Saharan region of Africa, the size of economy caught up to the economies of Brazil and Russia with 1.6 trillion dollars as of 2008 while it is expected that the total economic size of the Black Continent would reach to 2.6 trillion dollars in 2020. Between 2000 and 2010, 6 of the 10 fastest growing economies of the world were in Africa and economists say that 7 of the 10 fastest growing countries by 2015 will again emerge from the continent, which will have a bigger growth than Asia.

In the last 10 years, 32 percent of growth in Africa was due to the increase in commodity prices but it needs to be underlined that the economic leap in the continent is more than a “natural resource” explosion. Three percent of the growth in Africa is based on sectors like retail, transportation, telecommunication and manufacture. It is expected that Africa’s population of 1 billion will be doubled in 2050. It is also anticipated that the consumer expenditure of Africa, which is expected to compete with other parts of the world in consumption, will rival Russia and India with 1 trillion in 2020. Investments flow to Africa from every region of the world. Direct foreign investment to Africa, which was 10 billion dollars in 2000, rose to 80 billion dollars in 2010. This number is expected to reach 120 billion dollars in 2015.

Which cities are favourable for investment?

Everyone talks about the potential of Africa. But where should foreign companies focus on in this continent with a population of more than 1 billion. According to a survey by Frontier Strategy Group, the number of African cities with a population of 1-5 billion will rise to 73 in 2025. President of Frontier Strategy Group’s MENA Research Unit Matthew Spivack determined the first 5 investment cities to be preferred in the continent and 5 promising cities. Some of them are well known, but some may surprise you. “The 5 big cities” recommended by Spivack have political and economic stability and already hold a significant position among the destinations of direct foreign investors. Here is some useful information about these cities:

Accra, Ghana: Accra, which is one of the most important destinations in Africa, comprises around 10 percent of the Ghanaian economy. The city has a population of over 800 thousand and an economy of 3 billion dollars where the important revenue sources are manufacture, retail, finance, insurance, transportation and tourism.

Johannesburg, South Africa: The nominal gross national product (GND) of the city is 51 billion dollars. Given the fact the GND of Munich, one of the biggest cities of Germany, is 64 billion dollar, the potential of Johannesburg is clear.

Lagos, Nigeria: The size of Lagos’ economy is 40 billion dollars. But, it is anticipated that the GND of Lagos will increase significantly since this year, Nigeria changed the base year of the economic statistics.

Luanda, Angola: Luanda, the capital of Angola, built all sectors in its economy from zero thanks to petroleum, its most important natural resource and the city is among the favourite for foreigners. There is manufacturing in many fields including processed food, drinks, textile and cement.

Nairobi, Kenya: It will not be wrong to say that East Africa’s heart is beating in Nairobi, the capital of Kenya. Nairobi has become an industrial centre with the manufacture of processed food, motor vehicle, soap, construction material, textile and chemical substances. There is focus on plastic products, metal coatings, cigarette, shoes and clothes. The main export products of the city are coffee, cotton, sugar, diamond, iron and salt.

Attention to “Future 5”

For Spivack, the markets to provide multinational companies with great opportunities with the help of rapidly growing economies despite the current serious defects in the business environment are the African cities which are known as “Future 5”. Here are the popular cities that will determine the region’s future:

Addis Ababa, Ethiopia: The fact that African Union’s headquarters is located here makes this city Africa’s capital as well and gives it political importance. Particularly, giant beverage companies invest in Addis Ababa.

Darussalam, Tanzania: It is already considered as one of the favourite investment addresses of 2015. Japanese automotive giant Honda is among the companies that show an interest in the city. Honda plans to set up a factory with a local partner.

Ibadan, Nigeria: Ibadan has critical importance in community goods production. The city is one of the important centres for the trade of cacao, cotton, timber, rubber and palm oil. The industrial production in the city includes processing of agricultural goods, tobacco, cigarette, flour, leather and furniture.  

Kinshasa, Democratic Republic of the Congo: The city’s population is expected to reach 12 million in 2015. Despite poverty and weak infrastructure, multinational companies do not ignore the rapid economic growth in the region and have already started to pay attention to this city.

Mombasa, Kenya: Mombasa has the biggest port in Kenya and it is an important destination for sea tourism in addition to being an important commercial centre. The city contains an oil refinery and a cement plant in addition to being a rapidly growing call centre. Intercontinental underwater telecommunication cables pass through the shores of Mombasa linking East Europe to the rest of the world and supporting its position as a rapidly growing call centre.

TURKEY’S TRADE WITH AFRICA HAS BEEN QUADRUPLED IN THE LAST TEN YEARS

BRIC countries rush to Africa. They have already rolled up their sleeves to benefit from the natural resources of this country where China has already signed for big investments in Africa. Currently, most of the developing countries are also ready to get a share from this market. Standard Bank published a report indicating that the investments of 10 developing countries in Africa have been tripled in the last ten years and reached 330 billion dollars. BRIC countries have the biggest share with 250 billion dollars among the concerned investors. The size of the investments of the remaining 6 countries is 80 billion dollars. Two of these countries are from Africa, namely Nigeria and South Africa. Others are Turkey, Saudi Arabia, Thailand and Indonesia.

According to the report of Standard Bank, three quarter of the trade in Africa with 10 developing countries is done with China, India and Brazil. However, it is emphasized that other developing countries’ growth rate of trade, including Turkey, is very remarkable. While Nigeria’s trade with the other African countries increased seven times in the last 10 years, Turkey’s trade increased four times. The report indicates that Turkish multinational companies’ assets in Africa started to rival with the competitors in BRIC and cites this example: Defy Appliances, manufacturer of electrical home appliances in South Africa was acquired by Arçelik for 327 million dollars. The report also underlines that these 10 developing countries, which are increasing their trade with Africa, started to play more important roles in shaping the global economy with their rapidly growing economies and integration to international economy.

TURNOVER OF THE BIGGEST 500 COMPANIES IS 700 BILLION USD

African companies, which are being closely watched by investors from all over of the world, have even started to compete with global giants. The fact that the income level started to improve due to the growing population and economic growth ensures that the companies could increase their profits rapidly. African companies that survived the 2008 financial crisis without heavy losses seem to be able to overcome the effects of fluctuations in commodity prices and the debt crisis in the Euro Zone. An annual study about the biggest 500 companies of the continent indicates that African companies can maintain the growth in their financial tables although the new year started under the shadow of the debt crisis. Famous speculator George Soros believes that Africa is an attractive market to invest in. During a speech in Oslo, Soros stated that Africa was an interesting market to invest.